UBS AG (UBSN)’s wealth management Americas unit can still achieve the $1 billion annual profit target the company set in 2009, Chief Financial Officer Tom Naratil said.
The division, run by Robert McCann, will continue to expand its lending business, boosting returns on equity, said Naratil, who was CFO and chief risk officer at wealth management Americas before taking on his current role in June.
“Bob gave his $1 billion target weeks” after he started at UBS’s investor day in 2009, Naratil, 49, said in an interview in Zurich today. “We still think it’s a business that will make $1 billion.”
McCann, a former Merrill Lynch & Co. executive, inherited a business that had produced a cumulative loss for UBS since Switzerland’s biggest bank acquired Paine Webber Group Inc. for $11.5 billion in 2000 to gain a bigger presence in U.S. wealth management. The Paine Webber brand was scrapped in 2003. The business has never produced annual pretax earnings of $1 billion previously.
“It’s questionable whether UBS will be able to double earnings at the division in the coming years,” said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets, who has a “hold” recommendation on UBS. “UBS has been at it for more than 10 years. It would have been better off if it hadn’t acquired Paine Webber at all.”
Wealth management Americas reported third-quarter pretax profit of 139 million francs ($158 million) compared with a loss of 47 million francs in the year-earlier period after cutting costs by 17 percent. Pretax earnings were 390 million francs for the first nine months, during which time the unit added 10.2 billion francs in net new money from clients.
Third-quarter revenue at the unit increased 16 percent in dollar terms from the year-earlier period on higher fees and interest income, UBS said. The business, managing 651 billion francs for clients at the end of September, achieved the highest revenue and invested assets per financial adviser compared with U.S. competitors, UBS said. The unit employed 6,913 financial advisers in the quarter.
McCann, 53, last year hired Jonathan Kessler from Bank of America Corp.’s Merrill Lynch to oversee a push to sell affluent customers more loans, mortgages and banking products.
Building on that initiative will help boost returns and result in the division holding a higher proportion of UBS’s risk-weighted assets, Naratil said today. UBS has repeatedly denied speculation about a possible sale of the business.
The experience of turning around the wealth management Americas business is a “good lesson for people who wonder about the investment bank,” Naratil said. “When Bob came here, we worked on setting a focused strategy for a business that everyone thought was about scale. And everyone said you can’t shrink your way to greatness.”
UBS plans to disclose plans for future strategy at an investor day on Nov. 17 in New York, which will include scaling down of some businesses at the investment bank to make earnings there less risky and more stable, while supporting the group’s wealth management ambitions. UBS in July abandoned its goal of doubling pretax profit from last year’s level to 15 billion francs by 2014.
UBS was ranked as the third-biggest wealth manager by assets under management after Bank of America and Morgan Stanley in a survey published in July by Scorpio Partnership.
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